Fighting Electronic Fraud in a Cashless Economy

January 21, 2019

The warning signs are just starting to rise to the surface, as the new digital age unfolds. With the increasing proportion of electronic payments, the number of case frauds has been mounting alongside. E-money, which was once thought to be the safer form of currency, has bred a new form of theft, far more elusive and wide scale than its paper predecessor.

60 years ago, cash was the norm in every country in the world, and immaterial payments were the exception, covering only large or sensitive payments. This has remained in a few countries, in which cash remains king, but has greatly evolved in many others. TWN reporter Chakravarthi Raghavan says “In most advanced countries, cheques have disappeared or are dying a slow death. Credit or debit cards are now accepted by all but a few merchants. New electronic payment (e-payment) services are emerging around the world and are increasingly instant, ubiquitous and available around the clock.”

Two neighboring countries occupy each end of the cash-usage spectrum, with Germany holding on to its banknotes, and Sweden barely using them anymore. With new forms of payment appearing every month, banks and financial service providers are predicting that cash will disappear, and yield to its more modern, safer counterpart.

Supporters argue that electronic wallets are safer than cash, because electronic money is password-protected. Indeed, profits have increased in the online layer of the economy or, more to the point, they have transferred from cash segments to non-cash segments. Simply put, the items which used to be purchased in cash are now more and more purchased online, giving way to commissions for the service providers – hence the push for increasingly cashless businesses.

Forbes contributor Theo Miller writes: “A cynic would highlight Visa’s desire to increase transaction fees, but it’s worth looking past their self-interest. If you accept the premise that cash is going away, it’s good business to reward cashless establishments.” As banks welcomed the increasing share of online payments, certain security steps had to be taken.

As the world grows increasingly connected, online markets are developing and new funds made available are being dedicated to the security of electronic transactions. Indeed, all online payments use encrypted transmissions, and online financial security is a major point of focus and cooperation between service providers and financial firms. Some security features are blanket protections, such as the well-known HTTPS, while additional measures can be implemented to keep electronic wallets secure.

Stella Strouvali, from Security Gladiators online security firm, writes: “HTTPS means that the website you are about to visit is encrypted. This is truly beneficial to you, as it guarantees that even when a cracker succeeds in penetrating its system, he will not find anything of value. Instead, what he comes up with is encrypted and thus really hard to decrypt and make use of.” In the past 20 years, large companies have been built, working daily on keeping electronic fraud at bay. And yet, online fraud has been on a steady rise, and has now reached levels which worry law-enforcement agencies.

There are many methods to steal electronic money, as accounts are regularly hacked. Because online security is being addressed, doesn’t mean networks are risk-free, as regular breaches are a reminder the public. A recent attack on the SWIFT network, one of the largest financial networks on the planet, acted as a bitter reminder of the nonexistence of zero risk, and how dedicated thieves could access funds much larger than in the cash-only days, in far safer ways.

Bill Buchanan, Professor in the School of Computing at Edinburgh Napier University, wrote: “The researchers at Securonix identified that the Cosmos Bank hack had a layer approach (a progressive attack) and they pinpointed North Korean hackers (possibly from the Lazarus Group). Along with this they found that the hackers breached an ATM switch within the SWIFT network and then created two routes which allowed the money to be siphoned off.”

As a result, cases of online fraud have reached staggering numbers in recent years. The global amount of stolen electronic money is estimated at hundreds of billions of dollars each year, with 10 billion pounds in the UK alone. Guardian reporter Alex Perry writes: “Technology has enabled whole new illicit industries. Fraud, mostly online, is at an all-time high of 3.4m thefts of a total of £193bn in 2017. Other kinds of cyber-crime include Wannacry, a piece of North Korean ransomware that paralysed much of the health system for four days in May 2017.” Worse still, thieves are now able to steal more and risk less – so why not?

Law enforcement is helpless, as Metro reporter Joel Taylor points out: “Only a tiny proportion of online fraud cases are ever investigated and the police response needs a fundamental overhaul.” Behind the inability of law enforcement agencies to contain the problem, lie three factors: the distance between thief and victim which excludes witnesses, the often foreign-based nature of the crimes and the ability of fraudsters to conceal their identity within the network. Online fraud is therefore expected to continue rising dramatically in coming years.

The new era of electronic payments has been around long enough to start making the first assessments, namely on the promises of increased safety. Physical robberies have indeed declined to a residual level, to the extent that the Office of National Statistics doesn’t focus on it. But physical robberies have simply been replaced with their new, far greater, form: online fraud. When theft used to cost the victim a few tens or hundreds of pounds, and could be prosecuted, new victims often lose thousands and suffer loss of control over their digital lives.

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